Michael Porter's Model of Competitive Advantage - Case Study Example

Analysis of Competitive Strategy (Michael Porter, 2008) Michael Porter’s model of Competitive Advantage gives us two broad-based models of Competitiveness: Cost Leadership or Product Differentiation. In today’s fiercely competitive business environment, following just one model unilaterally does not guarantee success. Clearly, British Airways is trying to follow the Product Differentiation strategy by offering exceptional quality of service to its customers. BA needs to look at the following issues before it can develop a comprehensive and successful competitive strategy: The airlines industry is fiercely competitive, with too many highly motivated players striving to deliver best value to the customers. Therefore, to achieve a clear differentiation from the competition requires a holistic approach. In its efforts to pursue a service-oriented strategy, BA cannot afford to confuse itself as a premium segment or a luxury airline. It is a mass-based airline, therefore it must adopt a dual strategy by competing in the price segment as well as the premium segment. To achieve this differentiation, it may even develop a new economy brand that offers value for money, while retaining the original BA brand for its premium customers who are willing to pay extra for its services. The brand differentiation will help to create a strong product positioning and sharp market segmentation for BA. It will clear its focus regarding its target customers and define and differentiate their aspirations and priorities, instead of following a “treat-them-all-the-same” approach. The economy brand of BA will be able to derive great benefit from the strong brand identity of the original British Airways that is focused on premium quality and service. Therefore, within the price segment options, the customer may prefer the BA economy option, considering the BA brand value and the image of reliability that comes along with it. The exceptional quality and services culture of the original BA brand, its investments in training, motivation and employee development, its wealth of learning and experience in creating a service oriented organization, are bound to provide incidental gains to its economy brand. So even within the price market, the BA economy brand could be in a position to stand out amongst other price competitors, with its service-oriented history, reputation, culture and employee orientation. Along with the strategy on pricing, brand differentiation, and service quality, it is equally important to deliver the clear message to the potential customers. Therefore, effective and focused marketing and advertising strategies have to be in place to ensure that the customers get a clear understanding of the unique product offerings of the British Airways. In the airlines industry, as in any services industry, employee development and motivation is central to the success of the business. Therefore, due emphasis must be placed upon training, development and motivation of the employees of British Airways, particularly those who have a direct interface with the customers. BCG Matrix (FMCG-Marketing Blog) British Airways is a huge organization that needs to maintain a lean and nimble-footed organization structure in order to remain ahead of the competitors, and quickly adaptable to the change. It must review its business segments in the following terms: STARS (High Growth, High Market Share) BA must identify the sectors where its flights are always packed and lead to high revenue generation, and are the sectors where the customers prefer to use BA instead of other airlines. Maximum amount of concentration of customer service personnel is required in these sectors due to the high growth, high demand, busy flight schedules, and packed flights. The best service systems and the best customer service staff must be allocated to such flights. Such star sectors and high-growth market segments are the foundation of the company, and deserve top priority and attention of the company. CASH COWS (Low Growth, High Market Share) These are the sectors and market segments where BA has its traditional strengths and a high market share, but the growth rate is declining. BA must exploit the full potential of these segments while it lasts. It must remain alert to the changing situation whenever the market in these sectors starts shrinking. The efforts and resources committed to this sector must be reviewed periodically against the actual results achieved. DOGS (Low Growth, Low Market Share) BA needs to identify such sectors where it has a low market share, and low scope for growth due to saturated competition. If any sectors are making losses, they must be withdrawn. And even where the profits are nominal, the opportunity costs of operating in such sectors must be calculated, and alternative routes must be identified where the airline may be able to utilize its resources better. QUESTION MARKS (High Growth, Low Market Share) To consolidate its market leadership position for the future, BA cannot afford to ignore such sectors and such business segments that are growing and expanding at a rapid pace, but where the company does not have a traditional market stronghold. Major investments of time, effort and resources are required in these segments as the future growth belongs to them. The customer relationship and servicing schemes, offers and systems must be the best in these segments in order to build a market share for BA. Product Life Cycle (PLC) (Michael Grieves, 2005) The long-term business strategy of BA needs to take into account the challenges facing the airline industry in general. Like in every product’s life cycle, even in the airline industry, there is a point of saturation where the competitors become too many, and growth of individual companies begins to decline due to low market expansion. There are some exceptional organizations that manage to beat the forces of PLC by constantly reinventing themselves and making themselves innovation-driven companies. BA needs to prepare itself for a transformation from a “service organization” to an “innovation-driven services organization.” This will mean substantive investments in Research and Development, in order to come up innovative ideas for customer satisfaction that can be applied and implemented at a practical level. The creativity in service will become the key differentiator in such an organization, and not service per se. Creativity is the lifeblood of an organization, it is the miraculous elixir of youth that can extend the lifespan of the company beyond all expectations. Such an organization emerges stronger a general economic crisis and a recessionary phase that every industry is bound to experience during its life cycle. Such phases eliminate the over-competitiveness, cut down the saturation, and leave only the tough, agile and creative players in the business. Explosive growth and strong market domination can be enjoyed by these few players who survive at the end of the crisis. Recommendations Analyses of British Airways (Jackson et al, 2003; Ponsignon et al, 2007) identified that overall customer satisfaction is positively correlated with both willingness to recommend and sales turnover. The analyses also showed that cabin crew service had the highest influence on overall customer satisfaction. Further investigation revealed that, while meal rating and check-in service had positive relationships with cabin crew service, departure on time appeared to have negative relationship with cabin crew service, that is when planes depart late customers are more likely to be satisfied with cabin crew service. The question that this raises is why. There are two possible explanations. First, the airline has a well-designed service recovery process, which ensures that customers are kept fully informed of the reasons for late departure. Hence their expectations are carefully managed. Second it may be that cabin crew staff actually exert more effort when planes leave late, as they are aware that the customers are likely to be more frustrated and hence more prone to complain. These hypotheses were further investigated through a series of interviews with passengers on both short and long haul flights. Preliminary analysis of the data gathered suggested that both hypotheses are valid. Seventy-six percent of the passengers interviewed said that when they experienced a late departure they felt that the cabin crew staff exerted more effort to satisfy their needs and requirements. Eighty-two percent of the interviewees also expressed pleasure about the way they were informed of the reasons for the delay. The implications of these identified links are significant for BA as they illustrate that, while many of the theories held by the airline’s management were correct, there are significant issues associated with the implementation of the firm’s operations strategy. BA has traditionally focused on ensuring that planes depart on time. This makes sense as planes are extremely expensive assets and hence managing their utilisation is vital. Yet the BA data suggest that when planes depart late, customers tend to report that cabin crew service is better, and when customers report that cabin crew service is better, higher levels of customer satisfaction also tend to be reported. If correct, then this observation suggests that implementing an operations strategy that focuses on ensuring planes depart on time may not be the right thing for BA to do, at this point in time, especially as the airline is trying to differentiate itself through superior service. Of course, this does not mean that the airline should ensure planes depart late. Nor does it mean that all late departures are good. For example, a 30 minute delay on a London to Paris flight is far more significant than a 30 minute delay on a London to New York flight. Instead, the key issue the analysis raises for the airline’s management is: how can the airline ensure that the behaviours the customers appear to value, that come into play when planes leave late, are enacted on every flight? In essence, this is the real power of using measurement to challenge strategy, as it forces management teams to question their theory about how their business runs. Customers put reliability first in assessing service, yet salespeople and sales managers still perceive that customers regard responsiveness as more important. One possible reason for this disparity is that, unlike reliability, which is a wider organisational issue and takes an investment of time and money, responsiveness is most often provided by sales and service people and therefore is an easier dimension for them to control. Research reveals that salespeople and sales managers even make references about reliability less often than their customers. Honesty plays an important role in reliability, and is something that potential airline passengers appreciate. When a flight is going to be delayed, being open with the customer significantly increases the chances of earning his or her trust and establishing a long-term relationship. Airline customers have considerable empathy for the airline’s position, yet they have little patience for those who overpromise, fail to establish the proper expectations, or bring the customer in on a problem when it is too late for them to contribute to its solution. British Airways has learned that lesson, and works to keep that level of trust with passengers. Based primarily on the development of the Internet, the majority of customers expect 24 hour customer service. Although many companies are moving their customer service function to the Internet to better serve customers, few are prepared for the challenge this increase in customer access creates. Most companies do not realise that when they take their business to the Web, customer inquiries typically double or even triple, leaving even the most competent customer support staff besieged. A recent survey found that over half of customer inquiries to many websites are not responded to in a timely manner (Ponsignon et al, 2007). To earn repeat business, loyalty-driven companies such as British Airways, increasingly understand that today’s customers arrive on a Website time-starved and eager to locate answers quickly. Online tools are helping with consistent delivery of responsive service. Self-service, delivered through accurate and pertinent Website content, offers the quickest and most cost-effective means of answering most customer questions. Research shows as much as 70–90 percent can be effectively handled with self-service (Zomerdijk and Vries, 2007). This immediacy better serves the customer and can help increase the probability of a customer continuing the relationship. Conclusions As we have discussed, the key to growing a loyal customer rests first in creating an effective frontline employee. Increasingly, for many enterprises the employee front line is a customer contact centre where agents interact with customers. You may know it as a call centre or customer interaction centre or telecentre or help desk. The performance of its frontline employees determines how judgements of the entire company are made – and future sales made or lost. Indeed, many firms have traditionally considered call centres little more than a tactical, reactive point of contact for the customer. More visionary companies, such as British Airways, however, are now looking at inbound calls as an all-important servicing function that retains existing customers, cross-sells new services, and helps increase the company’s overall share of a customer’s budget. Giving the customer multichannel access points has been shown to have a positive effect on customer loyalty and profitability. These multichannel benefits are motivating more and more companies to develop converged call centres that integrate the various ways of interacting with customers into a single customer information system and contact centre. British Airways has already realised the importance of the self-service concept for customer service. The company will also expand its multichannel contact centres as a means of providing better customer service. That is the good news. The bad news is that with increasingly sophisticated communications channels for customers – including real-time Web collaboration, Web callback, e-mail, live voice chat, co-browsing, self serve kiosks – the skill level required of agents is rising sharply. As a result, the organisation must focus on hiring as well as training the right people as it moves forward. References: Harvard Business School Press (Digital - Oct. 25, 2008), "SWOT Analysis I: Looking outside for threats and opportunities"   Michael E. 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